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The Reserve Bank should not be considering any further interest rate hikes now the economy is in a weaker state than previously thought, the CTU says.
Chief economist Craig Renney told Morning Report the economy was in worse shape than the forecasts from Treasury and the Reserve Bank had indicated. However, it was not as bad as what National had been depicting during the election campaign.
The latest figures were worrying because it was possible further falls were on the way, Renney said.
The economy shrank 0.3 percent in the third quarter as households spent less, exports fell, and manufacturing activity decreased, new figures from Stats New Zealand showed on Thursday.
There had been expectations of a 0.2 percent rise.
Stats New Zealand also revised figures for the June quarter - showing a 0.5 percent GDP rise, compared with 0.9 percent reported at the time, with annual GDP falling 0.6 percent on the same quarter last year.
The strong growth in the population was helping to support the economy and without it things would be worse, Renney said.
Renney said there were other indicators, including consumer demand, that showed a much softer economy.
Household spending was down 0.6 percent and spending on durable goods which was a big pointer to economic confidence fell 2 percent.
The CTU's main concern was that the Reserve Bank had been lifting interest rates "without stopping to see if the patient had had enough medicine".
Interest rates had been raised very rapidly and any concern over the employment rate had not held the Reserve Bank back from pursuing that course of action, he said.
The coalition government has this week changed the Reserve Bank's mandate so that it no longer has to consider employment levels when setting monetary policy. The government wants the Reserve Bank to focus solely on tackling inflation.
In November the RBNZ said inflation was dropping, but not as quickly as it would like - so further interest rate hikes could be on the cards.
"Its [Reserve Bank's] job is certainly done and we shouldn't certainly be talking any further about rate hikes into the future," Renney said.
""Its [Reserve Bank's] job is certainly done" CTU chief economist Craig Renney
As for interest rates being cut, he expected that might start happening from around September 2024 - a few months earlier than major banks were currently predicting.
"The economy does appear to be materially weaker than previously thought."
If unemployment climbed faster than the Reserve Bank forecast and got as high as 5 percent next year, it would strengthen the case for interest rate cuts, he said.
Kiwibank chief economist Jarrod Kerr said the economy has been slowing markedly all year, and that should be enough to deter the Reserve Bank from raising rates again.
"The government's tax take is going to be less. The economy is simply smaller, less GST, less corporate tax.
"We are in recession - we recorded one last summer and we're going to record one this summer," Kerr said. "So the rapid rise in interest rates, the RBNZ has hiked aggressively with a heavy hand, has had an impact and households are hurting and, and so are small-to-medium businesses."
Kerr said the Reserve Bank had achieved its goal of engineering a recession so should now be looking to cut rates next year.